One of the great advantages of living in Canada is the generous government benefits system.
Had a baby? Take some tax-free child benefits.
Lost your job? Apply for employment insurance benefits (EI.)
Making low income? There are multiple assistance program for you. 🙂
But one dilemma facing the financial independence/early retire community is whether or not we should take advantage of these programs ourselves.
Should you accept government benefits even if you’re fairly well off?
I don’t have any moral issues using available government programs, such as child benefits for parents or the guaranteed income supplement (GIS) for seniors.
Becoming FI to retire at an early age requires a lot of planning, foresight, and delayed gratification.
All that requires work. And those who pursue it has to manage a lot of complex decisions which isn’t easy. Being strategic, having patience, and exercising will power have tremendous economic value. People who exhibit these traits are certainly well compensated for in the labour market. So if you practice these habits to reach FI then you deserve it. 🙂
Choosing to take the FIRE journey doesn’t magically give you a special privilege or unfair advantage. It’s primarily your effort, determination and personal choices that allow you to retire early. You are playing the same game as everyone else, and have simply chosen a strategy that hopefully aligns with your values.
So in terms of fairness, if you structure your retirement such that you receive government benefits, then that’s your prerogative!
You are not breaking any rules. The fact that you may be a millionaire does not abdicate your right to receive benefits. It merely indicates that you are compensated for your planning, sacrifice, and perseverance.
In fact, it would actually be unethical to arbitrarily punish someone for achieving their financial goals.
The famous Stanford marshmallow experiment offered children a choice between indulging in 1 treat immediately, or 2 treats if they waited for a period of time.
Imagine if a child waited. The adult then comes back holding another marshmallow in his hand, but then…
I don’t think that’s very fair. The kid will probably grow up to become a James Bond villain.😅
You deserve the fruits of your labour
People who reach FI tend to pay higher taxes than the average person. Early retirees often have to drawn down from portfolios worth over $1 million. That means they probably earned six-figure salaries during their working years to save and accumulate that level of wealth. Any government benefits they receive in retirement would be just a fraction of their income tax contributions over the time of their careers. 🙂
If you make high income, you pay high taxes. If you make low income, you receive government assistance. That’s how taxes work. Income planning simply tries to navigate this system as part of a larger financial plan.
Even contributing to an RRSP in order to reduce your taxable income is considered tax avoidance, according to tax lawyers. But that doesn’t mean you should feel bad about doing it.
Many dividend growth investors like myself don’t actually need the eligible dividend tax credit. But we probably benefit from it more than anyone else, lol. That’s just how we planned, based on how the tax system works.
What matters is how you use it
Ultimately it comes down to what you’re doing with the government benefits once you have it.
The FI community tends to be people who are budget-conscious, resourceful, and have a positive influence on their community.
It’s difficult for the Federal government to allocate funds efficiently. They don’t know what’s going on in your neighbourhood. It would be more effective for someone from a local community to allocate the money instead.
Investors who are FIRE can take government benefits, and repurpose them more meaningfully by spending on things that can actually make a real impact, such as…
- Tip 25% to a local waiter for exceptional service.
- Buy gasoline and volunteer to drive the kids and their friends for a class field trip.
- Help buy some supplies for a neighborhood BBQ.
- Support a struggling small business down the street.
Folks in the FIRE community are fiscally disciplined and demonstrate sound financial judgement. That’s how they got to FIRE. 🙂
They tend to be open minded, and generous with their time and resources. Wealth is created by providing value to society. A high savings rate typically requires a high income. And the most common way to earn a high income is to produce a tremendous amount of value to someone else.
So I don’t see any problems for a FIRE household to accept government benefits.
It’s essentially placing public funds into the hands of community oriented people who have a successful track record of mindful spending, fiscal sustainability, and producing meaningful value.
These FI individuals will then spend and redistribute this money into their local economies, providing value where it is most deserved, making a difference in their communities.
If that’s not a favourable use of tax payer’s money then I don’t know what is. 😎
Random Useless Fact:
According to Statistics Canada, chicken in grocery stores costs 10% more now than at the start of the year.